Shankar Jadhav, Senior Partner & CIO at Singhania & Co, is a seasoned industry veteran with a distinguished career, including his tenure as the former Managing Director of BSE Investments (the holding arm of the Bombay Stock Exchange) and Head of Strategy at BSE. In a recent conversation with Tech Achieve Media, he shared his expert insights on navigating the challenges and opportunities faced by startups and SMBs in India’s rapidly growing market.
TAM: What are some of the key challenges that startups and SMBs entering into the market face and how can they overcome these challenges?
Shankar Jadhav: When discussing markets and their key challenges, it’s important to understand that markets have their own mechanisms for functioning, which factor in all available information. The markets have been performing well because both domestic and foreign investors believe that India’s economy is on a positive trajectory, and that it will continue to grow. This confidence in the markets has led many promoters to come forward and list their companies, which is a positive sign. It demonstrates confidence in the Indian economy and indicates that companies are prepared to be transparent. Once listed, companies are required to disclose a lot of information, showing their readiness to operate openly and transparently.
This transparency brings clarity to how India is performing economically. So, thank you for that insightful perspective on the market. Now, I’d like to shift the focus to cash flow management.
We often hear that less than 5% of startups succeed past their first year, with one of the main reasons being poor cash flow management. What advice would you give to startups and small to medium-sized businesses (SMBs) on managing their finances and cash flow to ensure sustainable growth?
Firstly, it’s not just cash flow issues that cause SMEs to fail. It’s a universal truth that anything that begins will eventually come to an end. In the case of startups, failure can occur for various reasons. Sometimes, the ideas themselves are flawed, while other times, the execution is poor. Many startups manage to grow into small or medium-sized companies, but they still fail, often due to cash flow problems. However, it’s also about the mindset of the promoter and how they operate.
In the early stages, the promoter is typically involved in everything—from marketing and sales to execution, compliance, and financial management. But as the company grows, it’s crucial for the promoter to build a capable team. We often see that startups or companies fail not solely because of cash flow issues but because the promoter is reluctant to spend money on building a strong team.
Successful startups and SMEs usually have a dedicated team that shares the vision of rapid growth. It’s important for the promoter to delegate responsibilities, which can be a difficult skill to master. In my experience mentoring organizations, I’ve found that in most cases, the promoter needs to detach from the company to a certain extent and delegate tasks to capable people. Sometimes, the promoter might hesitate to hire skilled individuals because of the higher costs, or they might fear that these individuals will challenge their thinking. However, companies that succeed are often those that bring in people who can challenge and complement the promoter’s skills.
One way to incentivize talent is through Employee Stock Ownership Plans (ESOPs). Although ESOPs might not yield immediate financial returns unless the company is listed, they can be a powerful tool. I know of a case—among many others—where an unlisted company offered ESOPs to senior and mid-level employees. When the ESOPs vested, the employees found that their value exceeded what they had anticipated, sometimes amounting to more than ten years of salary. This created strong loyalty to the company.
My experience advising that company from its early days was incredibly rewarding. Not only did I support the company, but I also learned that promoters can significantly grow their businesses and provide more opportunities for their people by embracing such strategies.
TAM: How can startups and SMBs navigate the regulatory landscape in India and laws like the DPDPA to ensure compliance and avoid legal pitfalls?
Shankar Jadhav: Let me start with a simpler explanation regarding the DPDP Act. The DPDP Act is essentially a forward-looking law that has become necessary due to advancements in technology. I believe the government is wise enough to implement it gradually, rather than introducing all the provisions at once. They are likely to roll out the requirements periodically. The more substantial aspects of the DPDP Act primarily apply to large and established companies. Startups and smaller companies need not worry as much for now, but it’s important they start preparing because the penalties for non-compliance are significant.
A fine of 250 crore rupees per incident is a serious matter, and I’m sure board members will want to stay informed about compliance. The DPDP Act isn’t as daunting as it may seem. In fact, it has provided an opportunity for young professionals to deepen their understanding of technology. As for compliance, any company that intends to grow and improve must be well-versed in the necessary regulations. If a company plans to go public and use investors’ money, it must adhere to disclosure norms and follow the rules—this isn’t something that can be treated casually.
Compliance is here to stay, and there are many advisors and technical tools available to help. For instance, these tools can remind you of required compliances, and there are plenty of consultants who can assist you. Drawing from my experience at the Bombay Stock Exchange, where I was responsible for ensuring compliance, I can say that most of these regulations are well established. One area where I’ve noticed startups and small companies often fall short—and which could become a significant issue later on—is in ESG (Environmental, Social, and Governance) compliance. Companies need to disclose details like how much they travel and any activities that might be deemed harmful according to government environmental standards, as well as their social and governance practices.
Governance, in particular, is a major topic—arguably even more important than sustainability and environmental issues, which are already widely understood. Governance becomes critical as a company grows. When you’re small, it’s easier to manage with your own money and decisions. But as you expand, compliance becomes crucial.
TAM: What are some of the strategies that companies need to ensure to expand their reach market internationally and domestically?
Shankar Jadhav: When trying to grow a business, one critical factor is working capital, as I mentioned earlier. Another key aspect is building a strong team and developing in-house expertise. While you can hire consultants for various tasks, they are not the same as having your own team. Consultants can provide advice, but unless you have a long-term retainer contract with them, they are not invested in your company’s long-term success.
Many promoters make the mistake of giving consultants short-term contracts, such as two or three months, just until a project is completed. I believe promoters need to move away from this mindset. If you invest a little more in hiring good people, you can build a solid team, and having your own team or a long-term consultant can significantly benefit your business.
Another crucial aspect is staying attuned to the market and your customers. I’ve noticed that many startups and SMEs, after tasting a bit of success, assume that their product is perfect as it is, and customers will continue to buy it without question. They fail to recognize that customer preferences can change, and competition can emerge.
For example, in the financial markets, when we started at BSE, we realized that investors were staying away because they were often losing money and leaving the market. We learned a valuable lesson and initiated investor awareness programs. I remember we organized thousands of such events across the country each year, educating investors to only invest their surplus disposable income. Today, we see a significant number of investors participating in the market.
Another issue is making processes too cumbersome for customers. While regulatory work is necessary, it shouldn’t be overly complicated. I advise an SME that faced issues with collecting payments. The promoter realized that following up on payments after delivering the product was challenging. Instead, we implemented proper trade terms and focused on building trust with the customer. When you support your customer, especially during tough times, they are likely to remain loyal for life. Many SMEs don’t understand this, and rapid expansion without proper planning can lead to chaos.
Planning is essential. As a strategy head for almost two decades, I always emphasize the importance of planning. If you spend more time planning for different scenarios, you will face fewer issues down the line. For instance, in the stock exchange, even a brief interruption of microseconds can have significant consequences. Throughout my tenure, except for one early networking issue, the capital markets have operated smoothly without interruption.
SMEs need to plan well. If you try to handle everything on your own, it won’t work. You need an advisor—someone you pay well enough to take their advice seriously. When advice is free or cheap, it often isn’t valued. My recommendation is for SMEs to bring on board good advisors, independent directors if possible, and genuinely listen to what they have to say.
TAM: How do you think as you know startups and small companies should prioritize mentorship? What is the role that mentorship can have to lead to their success?
Shankar Jadhav: I’ve noticed that some promoters, especially those who are ambitious, prefer to go it alone. They avoid taking on partners, often because they’ve heard horror stories or had bad experiences with partners in the past. I think this is a big mistake.
A partner is not just an investor; they are also a mentor who has put in money and taken on risk. Their advice and insights can be more valuable than anything else. That’s why I advise many of my SMEs to consider taking on a partner who is willing to invest and grow the business with them.
Sometimes, they even ask me to invest, but I decline. I explain that I’m not someone who started with them, discussed the idea from the beginning, or worked alongside them. I’m their advisor. Perhaps, after working together for some time, I might consider putting skin in the game, but initially, I won’t invest money. So, finding the right partner is crucial—that’s the first point.
Second, as you mentioned, it’s important to listen to advice. If they don’t listen, they won’t succeed. When it comes to mentorship, some people mistakenly view mentors as retired professionals or individuals with inflated egos. But that’s not the case.
I work with mentors myself. Some don’t charge me money, but they do charge me with their time. When they need something, I have to step up and help them out—that’s just how it works. Mentors are essential for everyone, not just for young entrepreneurs, but also for seasoned professionals. I’ve mentored not only students and startups but also small and large companies alike.
If I may add another point, this is why shows like Shark Tank are so popular. It’s not just about investors and money; the sharks are there because they are ruthless. I’ve worked with some of them, and they act tough for a reason—they don’t treat you like a child. They see you as mature and capable, and they offer their views and put their money on the line. Of course, their investment is usually much smaller than the promoter’s, so the promoter should be straightforward with them.
TAM: Which sectors or industries in India do you see having the most growth potential as far as startups and SMBs are concerned?
Shakar Jadhav: First of all, India is a large country with a rapidly growing young population. This creates a vast consumer base with increasing demands for better food, more food, better education—you name it, India needs it.
However, the problem lies with many startup founders. Many of them aim to become unicorns, but they often fail to understand what the customer really wants. In the end, customers will still consume regular food, not something intangible. Yet, almost half of the people who approach me want to create something on the internet and make a huge amount of money. That’s not how it works.
Startups need to focus on what customers need, what they can serve, and the strength of their ideas. There is a need for more startups that focus on physical products and services. For example, the government has introduced the Production-Linked Incentive (PLI) scheme, which is a good initiative. However, the downside is that it primarily benefits large companies. I wish the government would also provide financial support to startups because getting started is not easy. While the government does offer various schemes, the real challenge is with banks. How many banks are willing to give you a loan of, say, 1 crore without collateral? They don’t want to take risks because their mindset is all about taking deposits and lending safely.
We need startup funders, but there’s also an issue with current government policies. You may have heard of the “startup funding winter,” which is partly due to government actions. I believe this is something the government needs to address. For instance, when I start a company, I might value a share at its face value. After working on it for a year or two, the company’s value might increase significantly. But if I have to pay high taxes on that increased valuation, it becomes unfeasible. The government tends to view this incorrectly. Yes, some people might misuse these systems, but it’s easy to differentiate between a hollow shell company and a genuine startup with real potential. The government should consider creating a board that can certify and assess startups properly.
Another point to consider is why so many startups emerge in the U.S. and other Western countries. Why do people from India flock to places like the Bay Area? Frankly, if I were starting a company today, I might consider establishing it abroad, perhaps in Europe or the U.S. Even though costs are higher and the dollar-rupee ratio is not in our favor, the business environment there is more conducive to growth.
In India, age is often seen as a disadvantage, whereas in other countries, it’s not even a factor. I’ve seen many promoters here hesitate to hire senior people, and that’s something we need to change. We also need to address gender biases. Women make excellent entrepreneurs. In fact, some of the best-performing companies I’ve seen are led by women. They’ve broken the glass ceiling, and if I were to start a company, I’d definitely bring women on board—not just as figureheads, but as real professionals.
The government needs to recognize that startups have the potential to become major contributors to employment and economic growth. If they don’t support startups, it will be a tough road ahead. Of course, not every startup will succeed; as SEBI and global statistics suggest, about 70-80% of startups will fail, and many SMEs will remain small. But that doesn’t mean we should ignore the 10-15% that will grow and become significant players. We need to focus on the potential for success rather than the likelihood of failure.
India is in a good position overall, but one thing I’d like to emphasize is that we are still a capital-scarce country. People are hesitant to invest capital, relying mostly on bank loans and debt. Promoters also need to be more strategic about using capital. If we value it properly and think through its allocation, we can achieve significant growth.
Looking at the venture capital and private equity industry in India, it’s still quite small compared to the Western world or even places like China, Hong Kong, and Singapore. We shouldn’t restrict it. And though this might be a political point, I believe growth should be organic. Mumbai has been the financial capital of India, and we shouldn’t undermine its position by trying to shift the financial center elsewhere. Let Mumbai continue to grow. When it reaches the level of London, Dubai, or Singapore, we can then think about developing other financial hubs. India is a large country with a significant GDP, and we should build on that without cutting corners.
